In re Cadillac V8-6-4 Class Action

Decided: June 7, 1983.

IN THE MATTER OF THE CADILLAC V8-6-4 CLASS ACTION

On appeal from the Superior Court, Appellate Division.

For affirmance as modified -- Chief Justice Wilentz and Justices Clifford, Schreiber, Handler, Pollock, O'Hern and Garibaldi. For reversal -- None. The opinion of the Court was delivered by Pollock, J.

The primary issue on this appeal is whether this Court should reverse the certification of a state-wide class of approximately 7,500 purchasers of 1981 Cadillac automobiles with V8-6-4 engines. This matter involves six consolidated actions in which Adrian I. Karp, P.A. (Karp, P.A.), a professional corporation through which Adrian Karp (Karp) practices law, appears as co-counsel for all plaintiffs. Karp, P.A. also appears as a representative class member. Plaintiffs claim that the 1981 Cadillacs contained common design defects and that defendant, Cadillac Motor Car Division of General Motors Corporation (GM), knowing of these defects, defrauded them and other consumers into purchasing the cars.

GM urges decertification, contending that common questions of law or fact do not predominate over considerations affecting only individual members and that a class action is not superior to other available methods for a fair and efficient adjudication.

GM also challenges the dual roles of Karp, P.A. as representative class member and counsel for the class.

After excluding claims for personal injuries and emotional distress of passengers and drivers other than owners, the trial court certified a class of all persons who resided in the State as of January 29, 1981, who either owned formerly or at present own a "1981 V8-6-4 equipped Cadillac." Furthermore, the trial court permitted Karp, P.A. to continue as a class representative and counsel. The Appellate Division denied GM's motion for leave to appeal. However, we granted leave to appeal. 91 N.J. 235 (1982). Subject to certain modifications, we now affirm the order certifying the class and remand the matter to the trial court.

We conclude further that Karp, P.A. may not serve as both class representative and attorney for the class. On remand, Karp must advise the trial court in which capacity he wishes to serve. Because an attorney should not undertake to act as counsel in a matter in which he expects his testimony to be essential, if Karp elects to continue as counsel, he must dismiss his individual claim and he may not testify at trial.

I

The maintainability of a class action should be determined as soon as practicable after the commencement of the action. R. 4:32-2(a). At that early stage, many crucial questions remain not only unresolved but unexplored. In the present proceeding, nonetheless, certain facts are undisputed and some critical factual issues are identifiable.

On December 3, 1980, Karp, P.A. bought from Vey Cadillac of Rockaway (Vey) for $25,386 a 1981 Cadillac Seville made by GM and equipped with a V8-6-4 engine. By January 12, 1981, Karp twice had taken the car to Vey for servicing. On that date, he complained of a burning smell after use, the flashing of warning lights on the dashboard and of the engine dying at high speeds, only to "kick back in." Vey was unable to correct the complaints, which it claimed did not appear during road testing, but

did replace the gas filter. Four days later, the car stalled and was towed back to Vey. At this time, Vey diagnosed the burning smell as the result of a leaking oil sending switch, which was repaired. The day after it was returned to Karp, the car again stalled and was again towed back to Vey, where it started immediately on arrival. Karp asked that the car not be repaired or returned, but stated that he wanted to rescind the contract of sale.

On the same date, January 22, 1981, Karp wrote a letter to the New York office of GM demanding a rescission of the sale. The next day Karp wrote to Vey alleging that Vey was unable to repair the vehicle and stating that he wanted to return the car, convey title, and receive a refund. Two days later, Karp traded in the Cadillac and purchased a Jaguar for $26,500. In a letter to GM, he demanded damages of $7,042.45, reflecting the cost of the Cadillac less its trade-in value, plus $156.45 for rental of a substitute car. Accusing the manufacturer of placing an inherently dangerous engine into the stream of commerce, Karp threatened, if not paid within two weeks, to bring both individual and class actions.

Although GM suggested that the matter be referred to arbitration, Karp, P.A. filed a complaint against GM and Vey on behalf of itself and those similarly situated, demanding rescission, compensatory damages, punitive damages, injunctive relief, and costs. Alleging that the V8-6-4 engine was defective, Karp, P.A. predicated liability on various legal theories: negligence, strict liability, breach of express and implied warranties, violations of the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301 et seq., fraud, and misrepresentation. Subsequently, Karp, P.A. filed as co-counsel five similar class action complaints on behalf of other representative owners in New Jersey.

At the core of the dispute is the V8-6-4 engine, which was designed to maximize efficiency by allowing an eight cylinder engine to run on eight, six or four cylinders, depending on the need for power at any particular time. The number of cylinders operating is regulated by a small computer inside the engine.

Installed in Cadillacs for the 1981 model year only (except limousines), the engine was intended to meet federal fuel efficiency requirements.*fn1

Purchasers of automobiles containing the V8-6-4 engine received identical express warranties and service contracts, including an extension of warranty issued on July 20, 1981, which covered the engine for five years or 50,000 miles. Furthermore, plaintiffs point to a Dealer Service Information Bulletin distributed to dealers on November 5, 1980, but not to the general public. The bulletin describes as "characteristics of the automobile, a slight lag in vehicle response, slight speed changes and a slight sensation when the engine runs in the six cylinder mode." In its conclusion, the bulletin instructs dealers not to schedule repairs for the listed conditions.

The characteristics described in the bulletin correspond to the common complaints of the owners, which include engine stalling, engine hesitation, engine failure, engine surge, rough ride, and a burning odor, sometimes accompanied by fire. Plaintiffs allege that GM marketed the engine knowing of its defects and issued warranties knowing that it could not honor them and repair the vehicles. Karp garnered these complaints about the car from answers to questionnaires mailed nationwide to potential class members who, he says, first communicated with him after learning of the lawsuit in the press.

At this time, plaintiffs cannot identify the precise design defects that caused these complaints. They suspect, however, that the cause is a defective part of the engine computer called a "PROM", and they intend to pursue that theory through discovery and expert testimony.

GM vigorously contends that the engine is not defective and that diverse causes unrelated to the design of the V8-6-4 engine

are the source of the common complaints. For example, it attributes the various problems of the individual owners to defective parts, improper maintenance, alteration of the car, or intervening accidents. GM asserts that the need to prove these numerous causes of engine failure would necessitate thousands of mini-trials involving, among others, the issues of causation and damages as to each car owner. Thus, GM contends that certification would prevent it from pursuing defenses based on each car's individual characteristics and use by each owner.

After limited discovery and oral argument on four separate days, the trial court consolidated the six cases and granted plaintiffs' motion for class certification. Limiting the class to New Jersey residents who either formerly or as of the date of its opinion owned Cadillacs with V8-6-4 engines, the trial court certified the action as to claims based on breach of express and implied warranties, negligence, strict liability, fraud, misrepresentation, violation of the Magnuson-Moss Warranty Act, and refusal to accept recission. Because the Magnuson-Moss Warranty Act requires notification and an opportunity to cure, the court created a subclass of individuals who still owned their automobiles, and ordered that the action with respect to that Act not proceed further unless class members, through their attorneys, meet the statutory requirements and afford GM an opportunity to cure the defect.

The court ordered that all potential class members be notified at the expense of the plaintiffs and that class members be given the opportunity to be excluded from the action. See R. 4:32-2(b). Furthermore, the court denied GM's motion to disqualify Karp from serving as both counsel and class representative. Finally, the court dismissed with prejudice the complaint against Vey.

II

Class actions originally developed in equity as a means of consolidating numerous claims involving common issues in a

single action. 3B Moore's Federal Practice § 23.02[1] (1982); 7 Wright & Miller, Federal Practice and Procedure § 1751 (1972). As time passed, certification of a class became a means of maintaining an otherwise uneconomical action. By permitting claimants to band together, class actions equalize adversaries and provide a procedure to remedy a wrong that might otherwise go unredressed. If successful, a class action can produce a substantial fund to compensate the class members for their damages and their attorney for his services. One potential abuse of the class action is that attorneys may solicit claims more to generate fees for themselves than to vindicate the rights of claimants. Moore's Federal Practice para. 23.02[1] (1982). Because a class action allows a few representatives to litigate the rights of many, a court must be cognizant of the rights of absent class members.

To qualify as a class action, a lawsuit must meet the requirements of R. 4:32-1,*fn2 which is modeled ...

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